Marcus Cake

Online networks which embody every facet of industrial, social and politcal aspects of our modern society are inevitable. They simply offer a superior way to interact and transact. The transition to a global community based around online networks will take six months, sixteen years or fifty years. The timeframe will depend upon the outcome of three epic battles. The battles are economic development vs geostrategy, community knowledge vs intellectual property, and online networks vs closed systems. The inevitable online industrial, political and social networks could be delayed for decades.

Moore’s law has dramatically improved the speed, cost or size of information technology over the last 40 years. The four functions of information technology that have been improved are processing, storage, transmission and capture. Computers can process faster, data transmitted faster and more data can be stored per square inch. The four types of information (text, sound, images and data) has been digitised. We often hear of disruptive technology. However, information technology improvements to date has done little more than reduce the costs of a business and has not been disruptive. To justify this statement, we need to revisit “Creative destruction”.

Wikipedia Extract:

Creative destruction, introduced in 1942 by the economist Joseph Schumpeter, describes the process of industrial transformation that accompanies radical innovation. In Schumpeter’s vision of capitalism, innovative entry by entrepreneurs economic growth, even as it destroyed the value of established companies that enjoyed some degree of monopoly power. was the force that sustained long-term

In fact, successful innovation is normally a source of temporary market power, eroding the profits and position of old firms, yet ultimately succumbing to the pressure of new inventions commercialised by competing entrants. Creative destruction is a powerful economic concept because it can explain many of the dynamics of industrial change: the transition from a competitive to a monopolistic market, and back again. It has been the inspiration of endogenous growth theory and also of evolutionary economics.

Innovation and “disruptive technologies” have not eroded the profits of existing industries. New business models encompassing the possibilities have not emerged. In fact, profits of many industrial companies have soared to record levels. This is due in part to new technologies. Existing industries have not adopted the potential of these technologies. The business model of some industries is one hundred years old. Few existing companies choose to adopt new business models or reshape industries for the next stage of economic development. This could be a result of the quarterly drive for profits that discourages long term investment. Perhaps, the potential of technology simply has not revealed itself. For whatever reason, the profits of many industries has soared. Technology has not been disruptive.

Online networks are likely to apply open source models to ownership of knowledge. The core knowledge will be in the public domain. Anyone can use the knowledge as long as the share what they have learned with the community. They will rely upon the strength and fragility of community’s desire to contribute. These disruptive structures do not necessarily conflict with the status quo. They could be a parallel means of delivering innovation in some fields of endeavour. Open source software has had a parallel existence with the proprietary software industry. A wealth creating online network will offer an alternative means to produce information by distributing information between manufacturers and consumers of information. It will probably apply a creative commons license to the information produced and information will be free to increase the wealth of humanity. Online networks which that rely on copyright infringement or seek to own information produced by the manufacturers will offer a fraction of the potential to make humanity wealthier.

How long will the transition to disruptive structures take?
Disruptive structures may emerge today, but the time frame to replace existing industries will depend upon the shelf life of the information, and the type of protection given to the information. For the purposes of this article, shelf life refers to the time frame over which the information adds value to humanity. In the case of music, it could add value to humanity forever or at least for the statutory periods that such information is protected. Financial information has a very short shelf life. It can be minutes or 12 months. The value of a five year old annual report is zero. The value of financial information has its highest value in the few minutes after its released and declines in value rapidly. For information with a short shelf life, a disruptive structure can have an immediate impact. This is because the nature of protection of that information can be changed at the time of release. The producers of the information can choose to apply copyright, or to license the information under a Creative Commons license.

For information with a longer shelf life, a disruptive structure will take much longer to have an impact. Some of the key elements of the cures to disease are quite simply privately owned. It will take time for patents to expire. Some governments continue to allow patents over important knowledge. There is an important debate to be had and the role of government is critical. If online networks can be built to deliver innovation using an open source model, what framework should be in place to allow them to emerge. What role should government play? Governments could stop granting any patents and could devote their efforts to building the online networks necessary to foster the innovation for the next stage of economic development. The government may choose to extend ownership of community knowledge. The United States has been extending its intellectual property system to the rest of the world through free trade agreements. The US has signed agreements with over thirty years and the key terms last for 50 years. Could economic development be delayed for 50 years because of these “free trade” agreements?

How will industry, government and the community react
The world seems to aspire to shared objectives. Transparency, accessibility freedom, capitalism, representative democracy, globalisation and a cooperative global economy are often represented as the principles that will govern the global community. Online networks can hasten our pursuit of these global objectives. These new structures will be truly disruptive. The response of the global community is uncertain.

Wikipedia describes the impact on employment:

“Creative destruction can hurt. Layoffs of workers with obsolete working skills can be one price of new innovations valued by consumers. Though a continually innovating economy generates new opportunities for workers to participate in more creative and productive enterprises (provided they can acquire the necessary skills), creative destruction can cause severe hardship in the short term.” - Creative destruction - Wikipedia extract

Different countries have different views on creative destruction and its impact on employment. Europe provides more employment protection for their people, and the United States provides less. Disruptive structures may fundamentally change the nature of employment. The protection of employment or other motivations may result in a desire to prevent or impair disruptive structures. The United States has used the creative destruction to justify minimal employment protections. However, they will probably protect key industries by extending intellectual property laws, rather than subjecting those industries to creative destruction.

Governments may, or may not, choose to interfere with rights granted to individuals and corporations under systems of intellectual property. If online networks can make humanity wealthier, they may choose to change changing existing systems sooner rather than later. They may also choose to inhibit the emergence of online networks.

However, in an era of the internet and a handful of countries that hold an alternative view, this is likely to be difficult. Web applications are likely to be a coordinating force and the servers that support them can be located anywhere. The internet was designed to withstand nuclear war by finding a path to the server with the information. If part of the network is destroyed or refuses to provide the information, the network will find an alternative path. The web applications that deliver the next stage of economic development are likely to survive geostrategy. Online networks will emerge. The latest the global community will have to wait for them may be 50 years - the expiry date of US free trade agreements.